Businesses hate higher taxes but say they'll take the hit

Chelsea Sloan doesn't want her retail franchise, Uptown Cheapskate, to get slammed with higher taxes. But it won't thwart her from plans to grow the business.

They hate the idea of higher taxes, but some small business owners say they can handle paying a little more.

That's how they feel about President Obama's plan to raise tax rates on income above $200,000, which would mean a higher tax bill for some businesses, including the Uptown Cheapskate retail franchise started by Chelsea Sloan.

So far, Sloan's small empire has grown to two stores and 20 licensed franchises. Make no mistake: Sloan thinks she already pays plenty in taxes. But the amount more she'd pay -- estimated at roughly $5,000 -- would not derail her plans to expand.

Raising taxes for higher-income earners would affect just3% of all small businesses. But that amounts to roughly 923,000, about 24% of those that employ workers, according to a report by Treasury Department economists.

If the Bush tax cuts disappear for all income levels in 2013, the owner of a company earning $500,000 in profits would pay an additional $16,000. If taxes are raised on only the top 2%, the increase would be less than that.

Sloan expects to be among those top earners next near, though she'll pay herself only a tiny fraction of her profits and invest the rest into her business.

With higher taxes, Sloan said she would still hire another employee at one of her stores, but she would likely pay that person $2,000 less. She'll also attend one fewer trade show next year. Although she can deduct both from her taxes later, she still has to save the money now to pay those higher taxes later.

Small businesses worry about the fiscal cliff

The issue here is one of cash flow. Banks have tightened lending standards, causing small businesses to increasingly rely on cash savings to hire the next employee or buy more equipment. Like many owners, Sloan learned the importance of that cash last year when she used much of it to stock up on extra inventory. When her tax bill came, she found herself short on cash -- all because too much of it was still in the form of jeans hanging on the racks.

Sloan said a tax increase will force her to be even more careful with how much inventory she holds, but it won't spell doom and gloom.

For instance, it won't prevent Steve Weaver from opening another two Uptown Cheapskate retail stores next year. He and his wife currently own four in North Carolina, and the slated tax increase on top income earners would drop their profits by 2%.

That means they'll have a less cash around to open the next store. But 2% of their profits isn't much compared to the $225,000 it'll cost to open another location in March.

Although Weaver identifies himself as a Republican, he disagrees with those who reject all tax increases. He noted that government spending is what allowed for the construction of the Western Wake Freeway extension near his store in Apex, N.C., making it easier for customers to travel south to his store.

Instead, he fears political paralysis over the fiscal cliff will freeze consumer spending.

"Uncertainty in the economy is going to cost me a hell of a lot more than this tax increase is," he said.

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